The Ultimate Guide to Retirement Taxes

Bennett S. Stein, CPA was quoted in a Best Company article by Alice Stevens discussing taxes.

Retirement is the dream. It’s about being financially independent, finishing work, and having more free time to spend with friends and family.

Unfortunately, taxes don’t go away.

“Many recent retirees are surprised to owe income tax time, because they are frequently not withholding on major sources of retirement income such as IRA distributions and Social Security benefits. You have to make withholding elections yourselves, with your planner or brokerage firm holding your IRA account, and by filling out Form W4-V to withhold from social security benefits. The typical working taxpayer has withholding taken care of by their employer, so they don’t expect to have to do this on their own come retirement,” says Bennett Stein, CPA and Investment Advisor Representative with Arbor Wealth Management, LLC.

10 Stock Picks That Should Love Lower Interest Rates

Patrick R. McDowell, CFP®, AIF® was quoted in a Kiplinger article by James Brumley discussing stocks picks that should love lower interest rates.

It’s official. The United States’ base interest rate, the Fed funds rate, has fallen for the first time in over a decade. The last time the Federal Reserve ratcheted interest rates lower was in 2008, when the subprime mortgage meltdown still was in full swing. The nation’s central bank was willing to try almost anything to kickstart the recovery that finally took shape in 2009…

Interest-rate cuts have a slew of effects that in turn help bolster some companies while chipping away at others. With a new lower-rate paradigm starting to gel, here are 10 stock picks that are perfectly positioned to get the most out of this environment of cheaper money.

Charter Communications could be among unexpectedly rewarding stock picks thanks to the effect that lower interest rates would have, too.

Patrick McDowell, CFP, portfolio manager with Florida-based Arbor Wealth Management, says, “The biggest beneficiaries of low interest rates are profitable, growing companies who can target their debt levels relative to their income and use that debt to fuel buyback programs.”

Arbor Wealth Management has tapped into the idea, with real money. McDowell continues, “The best example of this would be Charter Communications, which is one of our firm’s largest holdings. They recently issued debt at just above 5% which they will partially use to fund buybacks. That’s pretty accretive to equity owners over time.

“If rates stay lower for longer, which we think they will, companies executing this strategy will be major beneficiaries.”

8 Facts About Life Insurance You 100% Need To Know

Patrick R. McDowell, CFP®, AIF® was quoted in a Huff Post article by Casey Bond discussing life insurance.

That brings us to the next important point. To convince you to buy whole life insurance, some brokers will stress that it’s an investment, since the policy has a cash value that can grow over time. But if you’re concerned about growing your wealth, you’d be better off putting your money in the market or another true investment.

“Insurance is a product, not an investment. If no one is worse off financially should you pass away unexpectedly, you probably don’t need life insurance,” said Patrick McDowell, a certified financial planner with Arbor Wealth Management. The best-case scenario, he said, is that you pay monthly premiums for the duration of the policy and you get nothing back because you didn’t die.

The Party’s Almost Over, Say High-Yield Bond Investors

Patrick R. McDowell, CFP®, AIF® was quoted in a Fortune article by Erik Sherman discussing high-yield junk bonds.

The high-yield party has been raging. But investors who stick around may have one heck of a hangover.

In recent weeks, the difference in yields between high-grade investment or government bonds and low-grade, high-yield corporate bonds dropped to 375 basis points. Often called junk bonds, companies with low credit ratings issue high-yield bonds for access to capital, although at a higher interest rate than companies with good credit.

But risk needs the right amount of reward. The shift in yields meant only 0.375% in interest now separates the safest bond investments from those issued by companies with poorer credit (and a higher risk of default). Given the narrowing yield spread, several prominent portfolio managers have decided it's time to count their winnings and bail on high-yield bond…

"Our fixed income holdings have almost exclusively been high-yield for the better part of a decade," said Patrick McDowell, a portfolio manager at Arbor Wealth Management. "We’ve done well with the strategy relative to other types of fixed income. But we are dramatically slowing our purchases."

What We've Learned About Target-Date Funds, 10 Years Later

Patrick R. McDowell, CFP®, AIF® was quoted in a Wall Street Journal article by Jeff Brown discussing target date funds.

Back in 2008, many investors looking ahead to retirement in two years had a shock when “target-date funds” designed for them plummeted in value. Many had assumed those funds, targeted to a 2010 retirement, were safe from large moves that late in the game.

Another concern: The automatic investing strategy ignores changing conditions. Patrick R. McDowell, investment analyst at Arbor Wealth Management in Miramar Beach, Fla., says low bond yields in recent years have reduced TDF income after the target date, and increased the risk of losses on bond holdings if rates rise. (Higher rates hurt bond values because investors favor newer bonds that pay more.)

What’s more, he says, stocks and bonds have often moved in tandem in recent years, reducing the benefit from diversification, which assumes one asset goes up when the other falls.

Retirement savers who are automatically put into TDFs have the right to switch to other funds in their retirement plan as they learn more or conditions change, and Mr. McDowell recommends that investors get more involved as retirement nears. He says he often recommends investors nearing retirement leave the target-date fund and buy a mix of stock and stable-value funds—which contain bonds insured against loss and are designed to preserve capital while generating returns similar to a fixed-income investment—to reduce danger from a potential market plunge.